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01/11/2009

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John Papola

@Michael,

Why not just abolish the banks all together? It's not like we've learned anything from the 20th century about state-owned capital.

My lord. The banks are lending. Payrolls are being met. Inventories are moving. They're just no longer lending to the ludicrous high-risk borrowers that they used to during the credit/asset bubble. This is a return to sanity. The country, sadly, needs this depression to liquidate the bad investments and then rediscover what's still got value.

For the government to step in and try to keep the bubble inflated will bring nothing but greater destruction to real productivity and diversion of investment from good businesses to bad ones. Just look at the punishing flow of investment into these bust banks as the government announced TARP.

Now should be the time when the smart, prudent businesspeople rise up to take the place of the broken, bankrupt companies. Instead, we're punishing the prudent by endorsing and rewarding failure.

These are truly disturbing times.

RPB

@John P

Amen on your last post with respect to the free market ideology. There are too many unintended consequences and unknowns that will occur with a stimulus. Especially given the current funding environment and that success (lack of) of recent European debt auctions. I believe we are at a point in time where our only option is to inflate our way out of this mess.

However, with regards to the bank credit lines, in some cases they are overeacting and revoking/limiting/renegotiating credit lines to otherwise good companies.

For those interested in the "Logic" of how a stimulus (stimuli as they actually propose) works. This blog is written by a Berkeley professor who has done nothing but attack the Chicago School of Economic Thought. But do not think any contribution you may make to the site that questions the author's views will remain up for long - he deletes comments without mercy. This is especially true if you write something particularly clever or revealing. But it is nonetheless a good way of understanding keynesian and post-keynesian logic.

http://delong.typepad.com/sdj

neilehat

John & RPB, As for "Free Market Ideology" and the many "unintended consequences and unknowns"; we're beginning to see the free market's many come to the fore. I hate too say this, but this position's days are numbered as the Public and Economists turn their backs on it and we can get back to rebuilding the Nation and supplying full employment. Oh, I'm sorry that's "Welfarism" and anathema to all "Free Market Ideologists".

John Papola

I'd love to see the good Judge weigh in.

@RPB,

Thanks for the boost, buddy. My problem with "inflating our way out" is that inflation punishes the weakest among us. It is a re-distribution of wealth from the poor and working class, who see their salaries and savings devalued as prices rise. Meanwhile, the politically connected corporations, banks and government contractors get the benefit of spending the freshly printed money at current prices.

What we need is sanity. We need the government to calm down, stop the insane bailout zigs and lending zags that are further freezing investment and freaking out consumers. And we sure as hell don't need wild new regulatory structures that will scare entrepreneurs away.

We need creative destruction, baby.

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RPB

@neilehat

Don't get me wrong, I understand free markets failures in many fields. I also understand that Friedman's ideology did not take into accout the extent of financial innovation and failed to understand the agent's motivation to "game" the system (mortgage banker, structurer, fixed income rating analyst, derivative salesman, derivative investor up to the elected official that got votes by fueling the asset bubble, etc). The Chicago School needs modification, not complete destruction. However, one must also not forget all the government intervention, conservative or liberal, that fueled these asset bubbles and allowed these short sighted compensation schedules. Both were part of the mania that got us where we are. But that does not stand in the way of necessary government action to regulate properly, but not step in the way of proper innovation or in the way of people who look to create value. But let's not go nuts here and think these (relatively) minor failures refute our ideology of allowing agents to decide their own outcomes while also allowing them the freedom to innovate and derive profit.

@John P

The inflationary rhetoric of these stimuli and these stimuli affect on the poor is what many of the pundits and keynesians have forgotten. Wage/price spirals always disproportionately affect the poor.

But don't neglect the keynesian argument. Reminds me of the "underpants gnomes" from a dated South Park episode. The gnomes' logic:

1. Steal Underpants
2. Make Profit

Why does this reflect Keynesian stimulus ideas? Here is, essentially, Keynesian stimulus logic:

1. Government spending reduces overly high inventory levels to points far below optimal inventory levels
2. Manufacturers produce to return inventory levels to the "optimal level," employment returns to "full" levels as a result and the economy reverts to "normal"

Obviously flawed logic. Its like running from 1st base back to home and calling it a scored run.

Do they forget that they have to FUND these stimuli and that these must last long enough/be large enough to change agent future expectations of economic conditions? Both of these are not easily accomplished feats and I imagine a substantial amount of money will be spent before the Keynesians realize that Keynes' assumptions no longer apply to a globalized, service based economy mired in unprecendented debt. Where are we going to get the money once private treaury demand is tapped out? The only answer is through the Federal Reserve purchasing these asset by running the printing press and effectively causing massive inflation. I do not believe their would be any other mechanism.

But its alright. We can always short treasurys, short the dollar and buy gold. That way we'll atleast benefit from all these misguided stimuli.

John Papola

@neilehat,

Continually saying "this downturn is the result of the free-market gone wild" again and again does not make it true. "Free Market Ideology" didn't drive the Fed's price fixing of interest rates at 1% for 3 years, which was a root cause of the bubble. Nor was it "free market ideology" that encouraged the GSE's to buy risky mortgages to the tune of over 1 trillion dollars. Nor was it "free market ideology" that pushed on the banks meet bad lending quotas or risk severe repercussions.

And if you think that "we" can provide full employment where "we" is government bureaucrats in league with big corporate titans, you really should study up on the 20th century. It's quite instructive. Seriously. Central planning is an abject an unequivocal failure. Plus it has the added bonus of being fundamentally immoral because it is built on theft. Take some time to go back to our country's roots. Read some John Locke. Reflect on the founding. It's very very instructive.

Humanity has endured oligarchic tyranny for most of it's existence. Saying we should go back toward central planning oligarchs and calling it progress is a scary proposition.

@RPB,
Me and you are the same page, brother. Sadly, it's a scary page that doesn't bode well for our nation. Keynesian stimulus is failed time and time again. Just look at Japan! A decade lost to nonsense mired in government meddling. Paul Krugman and the rest of the keynesian snake oil salesman will always be with us, peddling their perpetual motion machine and colluding with the state to consolidate central power. They are, quite frankly, evil.

Cheers!

Ivan

"The saving rate has soared in recent months and is one of the major factors in reducing consumption and pushing us to the edge of a deflation."

Interesting, saving rate soared, despite 200 billions of "tax credit" stimulus by Bush administration during second half of 2008. Maybe Obama will be of better luck with 800 billions in 2009?

Ivan

"The saving rate has soared in recent months and is one of the major factors in reducing consumption and pushing us to the edge of a deflation."

Interesting, saving rate soared, despite 200 billions of "tax credit" stimulus by Bush administration during second half of 2008. Maybe Obama will be of better luck with 800 billions in 2009?

Ivan

"The saving rate has soared in recent months and is one of the major factors in reducing consumption and pushing us to the edge of a deflation."

Interesting, saving rate soared, despite 200 billions of "tax credit" stimulus by Bush administration during second half of 2008. Maybe Obama will be of better luck with 800 billions in 2009?

Ivan

"The saving rate has soared in recent months and is one of the major factors in reducing consumption and pushing us to the edge of a deflation."

Interesting, saving rate soared, despite 200 billions of "tax credit" stimulus by Bush administration during second half of 2008. Maybe Obama will be of better luck with 800 billions in 2009?

suo marte

First, I voted for Obama so please do not interpret my skepticism of the public works & transfer payment elements of his proposal as a Fox News inspired "right wing" attack.

Second, I agree w/ Prof Fama: the stimulus is borrowed money which will displace other uses of these funds and that the stimulus will only enhance income if the stimulus is moving resources from less productive to more productive uses. Govt intervention in the economy distorts activity & is less productive than the private sector, period! And please spare me the tired old Hoover Dam & TVA "proofs" of Govt success... All Obama's debt will do is reduce the amount of future economic growth. We'll all be poorer in the long run as a result of this spending orgy.

Third, for me, Henry Hazlitt's "The Failure of the New Economics" debunked Keynes' General Theory, way back in the 1950's... I encourage everyone to read this book and decide for themselves. Moreover, the 1970's proved empirically that Kenesianism is wrong. Look at the data...

Fourth, Govt manipulation of the market process (Fed Reserve policy, Fannie Mae, Freddie Mac, etc.) caused this mess and I'm amazed by how many people want even more Govt manipulation to fix the problem that it created!

Fifth, re: all economists now are Keynesian... The problem is very few of our schools teach the alternatives to Keynes. It's no wonder most Americans are completely confused, especially the media. How many students have actually read Schumpeter's "Theory of Economic Development"? And he was a Harvard Professor! How many of our econ students have ever heard of the "economic calculation" debate let alone actually studied it and understand that socialism cannot work in theory or reality? And that the more Govt manipulates the free market process, the lower our collective standard of living will be. Instead, most are taught that Govt intervention is good!

Last, even Bernanke admitted at one of Friedman's birthday parties that Fed Reserve manipulation of the money triggered the Great Depression. Moreover, I recommend eveyone read "Out of Work" by Vedder & Gallaway before concluding the New Deal did any good. The fact is, despite all of Roosevelts best efforts, the New Deal did NOT reduce the average unemployment rate between 1933 & 1938. Median unemployment was about 17% during this period which was 3% higher than the worst median unemployment the US ever experienced over its recorded history.

neilehat

John, My family is the Country's roots. We washed up on the shores of this continent back in 1705 and duly began clearing the forests and slughtering the indigenous population to make it safe for Europeans. Then turned around and kicked the French, English and Spanish out. We're not about to start listening to some ideological hack who just recently got off the boat.

The Government as an "Oligarchic Tyranny"? Man! You have gone off the Deep End. Reading? It's just not reading that's important, but the proper interpretation of the texts as well. Something you should learn.

"Vox pupuli, vox dei"? More like "Vox populi, vox diabolus".

Libertas

Please join the Facebook group of Libertarian bloggers : http://www.facebook.com/group.php?gid=40644723076

Jack

suo marte and all: I'm seeing this lament with quite a bit of frequency lately:

"despite all of Roosevelts best efforts, the New Deal did NOT reduce the average unemployment rate between 1933 & 1938. Median unemployment was about 17% during this period which was 3% higher than the worst median unemployment the US ever experienced over its recorded history."

...... and have assumed it means Heritage.org has commissioned a few books on the subject.

I'd like to ask; "compared to what??" What would unemployment been w/o intervention? The same group urged Pres Bush to lower taxes despite massive deficits, citing "job creation" and all sorts of real or imagined benefits. Were those deficits not an attempt at Keynesian spurring however poorly targeted they were if that was the purpose? Was not the economic effects of WWII that of Keynesian spurring on steroids? Massive government spending and hiring?

Jack

RPB...... I guess that one thing we can all agree upon is that of the poor being disproportionately screwed in all cases. You've made the inflation case, and of course the unemployment, underemployment and depressed wages of a down economy disproportionally affects them first, longest and last, as well.

Only half facetiously I suggest giving "em" uniforms and a certain amount of honor as foot soldiers in the "war on inflation" and the very foundation of an economy that always has to have five or more percent unemployed that the other 95% enjoy a "balanced economy".

John Papola

@neilehat,

You've rebutted nothing, my friend. I wish you had. I'm here to discuss ideas.

So I'm sorry that you're unwilling to really engage in the discussion. Instead, you feel the need to lean on personal anecdote and insult. It's fine. I'm happy that you are proud of your family history. Family is what matters most. But having ancestors back to the colonies doesn't make your ideas accurate or your unfounded proclamations the truth.

My Italian relatives came here only three generations ago. Are you suggesting that I'm not as "American" as you are? Have you somehow retained the knowledge of our founding in your DNA because your bloodline was here to see it? I'm just not seeing the point.

If your 19th century relatives could see what our government has become, and the hideous warfare/welfare state it maintains, they'd be shocked and horrified. Please, share your "proper" interpretation of some texts. I welcome actually ideas. I get enough dubious one-liners like "free markets gone wild caused this crisis" from the media.

As for my tone, well, I'm sick and tired of incrementalist, soft fascism being tolerated under the guise of "pragmatism". If you find my use of terms like Oligarchy or fascism hyperbolic, please challenge me. The Federal Reserve is a fascist, oligarchic rule over our financial system with no accountability whatsoever. I think that's a fair, rational statement. Not something "off the deep end".

@Suo Marte,
glorious, post buddy. simply excellent.

@Jack,
Regarding comparing the great depression to an alternative history: there were two recent prior downturns in the late 1870's and in 1920. Both rebounded quickly with essentially no federal action (because the constitution was still in effect). Remember "the roaring twenties"? Yep, that followed a sharp downturn during which the Harding administration did Zippo. At least... I think...

And yes, the poor and working class are screwed. Especially by protectionist policies that contract employment and reduce opportunities to enter the workforce for new comers.

Jack

@John: Well this is getting a bit long, but as you say we can learn from debate........ so I'll cherry pick just a few areas:

++But I think where you and I start to have a hard time is in basic language and, indeed, philosophy behind the language. I do not conflate the government with "us".

JJJJJJJJ At this time you may be right. Where I am I see FAR too much corporate power and trust of "The Market" which, as we've seen several times in the last 50 years doesn't respond to the lemmings running off the cliff until it's very late for responding. Thus, I INSIST the our government is us, and if not that is surely a subject at least as important as "Whhhhaa happened to the economy and the lemmings chance of ever retiring?" I suppose one hardship for Obama & Company going out on the plank is that of another faction lamenting "If god wanted infrastructure and a new energy paradigm "The Market" would have already created it."

And perhaps you say it in fewer words:

++We are, as Franklin said, a Republic... if we can keep it. I fear we've lost it.

JJJJJJJJ To which I ask "To whom??" And shall demo and cracy work to get it back? In your ethanol example it was CLEARLY Archer Daniels and farm lobbyists doing the "taking" and leaving us with what appears to be an irrational energy policy of little worth. A failure of government and not the market that should be corrected.

As for the "we" who neglected infrastructure there is no one else but "WE". While a bridge always has a father and usually a plaque, maintenance is an orphan and there is no one else but WE to care for it.

And as for comparing the PRODUCTIVITY of the $50K teacher to the $10 million plus insurance CEO, I guess that despite taking a slam at the teachers in your region that you've agreed that the teacher is a FAR better buy than is the CEO?

As for my getting out the violin and weeping towel for MSFT just now, forget it, someone went out and slipped in a computer "running???" Vista while I was gone and I've been disappointed every since Bush & Co seem to have sent the Anti-trust Division on an eight year holiday. WOULD that someone NOT have allowed Citigroup and others to become such monstrous dinosaurs!

++s for mises "pumping ideology", I don't consider that an insult or a useful criticism. If there's errors, dig into them. Again, Ideology drove our independence.

JJJJJJJJ Great, and perhaps when I've time I'll take a few swipes at the article. Logically, you've confused the use of the word ideology in one sense, as those high ideals of our founders with the far mmore wretched insertion of an irrelevant ideology into a discussion of known and generally accepted, and acceptable, economic principles.

This sort of thinking has been a HUGE problem for us since Jan 20th 1980 and one I hope will be at least partially corrected as the terms "trickle down" "supply side" and "voodoo" bring guffaws instead of the sort of faith-based reverence of the last 30 years.

And lastly as for "urban sprawl" and too many roads........ I've mixed feelings. I've sort of watched the LA area as Orange County became the "bedroom" and "white flight" refuge while today light industry, high tech and finance followed the growth of the residential sector making OC a center of its own and THE west coast financial center. In other areas the flow is reversing to regentrifying the once abandoned city cores. It's hard to say what "should have been" but as one close to land use planning I KNOW that if there is a tolerance or acceptance for it, it is VERY recent! Jack


I agree that the deficit spending and loose monetary policy have created fake wealth at the cost of enormous debt burdens on our currency and our nation's future. We can certainly agree there.

But I think where you and I start to have a hard time is in basic language and, indeed, philosophy behind the language. I do not conflate the government with "us". The government is an organization of individuals with the same human nature and incentives driving their bureaucracy as any other organization. The difference is that the government derives its power and funding from coercive force and need not justify it's "investments" with sustainability or profit, like a private organization must do.

This idea of collective psychology and collective choice is just baloney. Each of us choose for ourselves. Elections with 5% margins don't mean that "we" chose anything. And even if the margin was 80%, that will still just equate to mob rule. We are, as Franklin said, a Republic... if we can keep it. I fear we've lost it.

So "we" didn't neglect infrastructure. The government did. Go check out the roads in Disney World. They're doing just fine. The BQE here in NYC on the otherhand? Forgetaboutit. And why do we even have so many damn roads in the first place? People complain about suburb sprawl and the death of "downtown", but it was these very government projects that have given us the car culture that created these "problems".

Let's take a look at the "New Energy Future" for a minute. So far, government mandates and massive "investment" has gone into hands-down the WORST fossil fuel alternative imaginable: ethanol. Truly, it is the worst. Hundreds of billions of dollars have been taken from the taxpayer and given to a tiny handful of people in crucial election states to fund what is universally acknowledged to be an immoral product. As a double-whammy, the subsequent boom has driven food prices sky high and punished the poorest and hungriest people around the world. Many countries have been destabilized by these phony and immoral food price spikes.

And even after a major public backlash, nothing has changed and nothing is being proposed to change this horrifying policy of using food and arable land for fuel.

THAT's state "investment".

When government agents, whose principal incentive is re-election, have discretion to spend other people's money, this is the result. Corruption. No company could have enabled this kind of policy absent the monopoly of force that Uncle Sam provides. And what of the enormous investment resources that have poured into biofuels INSTEAD of going to genuinely productive alternatives? Behold the opportunity cost. That is MALinvestment. Not a multiplier.

There's no reason to believe that the government will "invest" in the best technologies and every reason to believe that they won't. What they will do, is get gamed, and collude and steal away opportunity, just as Ethanol has drained research and capital away from other pursuits.

"This IS a tug of war isn't it? One that clearly brings up the question of what role democracy plays in our nation as compared to what is sold as "the market" though it clearly includes those "coercive diversions" that can and are purchased from Congress on a regular basis. But! slow as it is, the pendulum finally swings in a democracy and it's clearly time to look at "the rules" regarding the commonwealth, energy for the future, and health care. "

As you can see with our immoral farm subsidies, our monopoly-maintaining FCC, our destructive monetary policy and countless other forces of state agency... democracy isn't working. The pendulum is swinging in a range of about 3 degrees between the supposed "left" and "right". Why? Because the incentives for state agents keep the incumbents in power. "Campaign Finance Reform" simply erects higher barriers for new comers. Massive regulations like the new CPSIA of 2008 destroy small competitors, leaving the big guys to grow.

Democracy works when the state is doing the simple things that a balance of power can truly check. We're so far beyond that now.

"Well, what the $50 teacher produces as compared to what the $10 million buck insurance CEO or DC lobbying firm produces is surely a topic for another day"

Ask the kids in Newark how that $50 in taxpayer-funded salary is working for them. Even with $18k/student, that system is failing. It's only a few miles away from me and let me tell you... they're suffering. No competition + no accountability = failure.

DC lobbying happens because the state has the power to effect these companies. Ask Microsoft, who prior to the anti-trust suit had virtually no lobbying presence, what happens when your competitors choose to compete with Uncle Sam's club. They learned the price of doing business without collusive lobbying.

As for the insurance CEO... don't even get me started. Insurance as a concept has gone completely beyond all reason, and yes, is part of today's meltdown.

As for mises "pumping ideology", I don't consider that an insult or a useful criticism. If there's errors, dig into them. Again, Ideology drove our independence. Ideology underpins the very idea that "all men are created equally" when simple observation demonstrates that we are not. Ideology is what we need. Not "pragmatism" that leads us into ridiculous wars and ever expanded failed programs supported by tax-consuming interest groups.

If you knew me, you'd know that I'm a generous, empathetic person and a caring parent. Not some freak, supply-side cartoon character. But this idea that each of us can live at the expense of all of us is wrong. Bastiat understood that. Philosophy and ideology give us that gift on understanding.

god bless. Love the debate. Always learning.

John Papola

@Jack,

One other thing. War is not good for the economy. Drafting all the unemployed and sending them to the meat grinder may have eliminated unemployment, but it wasn't economic. Not to take away from what the greatest generation. War is not creative destruction. It's just destruction.

John Papola

@Jack,
Thanks for digging in a bit more. Again, this is all a process.

I beg you to not conflate the state with "us" simply on the grounds that it's some kind of counterbalance to "corporate power". Partly because it's philosophically bad and partly because it is no such thing. The state is pro big incumbents. Always has been.

I ask that you start looking into the long, horrible history of regulation in this country and how it has more often than not been a tool used by big corporations in league with the politicians to maintain their monopoly. This goes all the way back to some of the first big regulations, like the Interstate Commerce Act of 1880, which ended up bolstering the big railroads and protecting them from competition. Nobody hates a free market more than big corporate incumbents.

Dig into the FCC and see how it's entire history has been one big collusive enterprise of protecting the broadcasters from competition, enabling them to grow bigger and more powerful. Hell, even Ralph Nader wrote of the monopoly creation that regulations bring about in his 1973 paper "The Monopoly Makers".

And, again, I don't feel you've made a compelling case that "we" have ignored our infrastructure, or that there is a "we" at all. This is an enormous country of 300 million+ individuals. There is no single "we". That is macro theory at it's most abstract. It is "reductio ad absurdum" in the ultimate form. Some state and counties have maintained their roads and bridges, others have not. The Tappan Zee bridge in New York is teetering on collapse and every New Yorker knows it. How have they failed? Which New York election had infrastructure as a major plank in the platform? None. I personally haven't ignored any infrastructure. I reject being clumped into this "we". It is the politicians and bureaucrats that have failed their specific infrastructure maintenance mistakes. They are responsible for it. But the tragedy of the commons is called a tragedy for a reason.

I realize I'm getting hung up on a verbal shorthand, but I think it is the key to everything in a way. This conflation is what provides cover for our corrupt politicians and bureaucrats. It spreads around blame undeservedly.

I recommend you check out Russ Robert's Econtalk podcast. It is EXCELLENT. He spends a lot of time digging into this romantic myth of a collective "we". It is a myth. It is emotion and romanticism. Not reality or policy. Again, It masks accountability by spreading it around, just as Bush has socialized the failure of our fascist banking system.

As for "generally accepted economic principles"... I assume you're referring to keynesian economics and the alleged "multipliers". The "new economics" as compared to classical economics. I will happily admit that I reject the Keynesian school and find the Austrian descriptions of inflation and the business cycle to be much more compelling. I don't believe in macro solutions. I don't really believe that the macro is useful at all. Maybe that's the minority view. I'm fine with that. Most great ideas start off in the minority. As outliers.

I'm frankly amazed that anyone still utters Keynes at all when the stagflation of the 1970's completely destroyed the entire theory followed by Japan's lost decade which really put the nail in the coffin.

My understanding of economics education today is that it quickly becomes highly mathematized and niche and disconnected from economic history or the basic human incentives that underpin the discipline. Much of academia is a calcified museum of failed ideas thanks to group think and tenure. Keynesian economics is one of them.

You must recognize that the Reagan+Volker monetary tightening, built on sound Austrian principles, curbed inflation where Keynesianism could not. That Reagan went right back to deficit spending doesn't overturn the core truth of Mises and Hayek.

Forget "trickle down" and "supply side". I'm not presenting those ideas. I'm not talking about the "Laffer Curve". I have no love for deficit spending through tax cuts. I don't want the taxes or the spending. But if you're going to spend, they should at least tax to pay for it. And taxation generates a popular response that kicks democracy back into gear, whereas inflation and borrowing are insidious ways of state spending that kick the can on accountability. Bush and Greenspan kicked the can in 2001 and we're feeling it now (not that they were the only cause, not by a long shot).

Now, I'm very new to this stuff, so maybe I'm dead wrong. I'm a TV producer, not an economist. And I'm only 31. But I know a lie when I see one, and calling our current problems a "free market failure" is a pure lie. I also work very hard for a living and see how people interact in business and the role that incentives play. Austian economics, from what I can see, is the real deal, and the libertarianism of Ron Paul and Murray Rothbard is the most moral political philosophy I have ever read.

Sorry, Judge, for blathering in your comments. This is certainly terrible comment etiquette. I'm just a passionate skeptic. An enthusiast. A geek. My blog is coming online soon for all 50 people that care. ;)

Jack

@John: It's a bit of a topic diversion to point out that war is not ultimately good for the economy, though you'd have a hlll of a time convincing anyone who was a young adult during the 30s. But agreed, if we spend scarce resources to build a helicopter it might pay us dividends working for CG Rescue for 20 years as compared to blowing it up in a few weeks. (Unless of course "The Product" is that of winning the war)

But! I was pointing out the WWII was the ultimate Keynesian spurring and it "worked" in spades! And, you'll recall that those claiming "spurring" did no good, had NO controlled experiment, they're all just theorizing. Tough no expert, my guess is that the reason Bernanke and others are still having a hard time discerning the causes or the cures due to what appears to be an official example of Hogan's Goat.

Your other post on the horrible case of regulation has me thinking that you might be one of the few remaining, including Gspn who didn't learn some respect for oversight and regulation.

I'm not sure why this should be in a nation of football fans as if we use f-ball as a metaphor for capitalism neither work very well without ground rules and referees. With the rules in place and enforced both football and capitalism holds rewards for those who go to work and work wisely and efficiently. W/O we get losses equal to a year's GDP!!

As for "Reagan-Volcker" or perhaps better Carter-Volcker as it was Carter who took the hit for taking the "Whip Inflation Now" buttons off Ford's lapels, it was another Hogan's Goat era of devaluation of the dollar, soaring oil prices and the attendant price increases, and in housing et al us boomers sallying forth to buy our first homes, or, better yet "flip" them to our fellow boomers, buy an German built car with the proceeds and look down our noses at those who weren't "creating wealth".

As for "free market failure" I suppose you'd have to define your terms. Would you consider it a "game failure" if one team showed up with a front-end loader, popped the ball in the hopper and headed for the goal line? While the refs pretended not to hear the roar of the diesel?

Lastly, could it be that we MIGHT run our nation with a balanced budget and money supply managed so tightly that a buck today will be a buck fifty years from today? In theory, maybe and I'd love to see PORK power taken away from Congress and the Admin, but then there is that pesky real world.

Look back; along comes a costly, unpopular war no one wants to pay for that last half a generation.

(Fannie and Freddy of current fame were sold off by LBJ to hide the war costs, but he did, finally impose a surtax and left us with not too much debt.)

Then came the run on the dollar that made it necessary (I guess??) for Nixon (and Rebozo?) to dump the "gold standard" or to openly change the gold-dollar ratio.

(Ha a GS in which WE were not allowed to own gold! I'd tell Unc Paul that we're NOW on the GS as I CAN get rid of my paper for a lump of gold, and as with WWII and Vietnam gold did not curtail deficit spending.

Then the S&L debacle....... again, a half-baked "dereg" that allowed podunk "bankers" to enter commercial banking and waddle around gambling with FDIC backed deposits. Ten years smoldering in plain sight and finally........ ha! The "unexpected" Meltdown.

Then? a balanced budget for five years and comes a campaign, and a pol running on Reagan-revisited w/o the style or eloquence, but giving American children their Holy Grail, a tax cut that was FAR too big, and poorly targeted to boot. GOBS of D E B T. Nor did we need Anti-trust or any other regulation! Now? The Mop Up.

And somewhere out there near the end of the rainbow is Voila!! the ever elusive equilibrium with all those little supply and demand graphs hardly vibrating........ if only we could get it right!

Trealmorm

+1 :)

John Papola

@jack,
Again, love the discussion. Love it. Thanks for engaging.

I don't believe I'm well equipped to dig in on war-as-keynesian-stimulus. My instincts tell me that it's baloney. The very nature of an economy is free, voluntary exchange for the purpose of improving one's standard of living. Being drafted to fight (and die) in a war and calling that "employment" is a tragic redefinition of the term. Our brave men fighting WWII, therefore, were not gainfully employed. It's a great achievement that we've maintained a voluntary army since Vietnam and I pray we never go back to the slavery of a draft. Speaking of which... would you celebrate Slavery as a keynesian stimulus because it employed those people? It's the same moral logic as calling war employment.

On Volcker. Carter appointed him (and Carter was, on-net, a deregulator), but he prevented Volcker from taking the sound-money approach because he didn't want to lose re-election. Carter also instituted pro-cyclical wage/price controls that made matters worse. Check out "The Great Inflation"by Robert Samuelson. He lays out how Reagan's political support for Volker's policy, despite the deep recession it brought about in 1980, allowed for inflation to be checked. At least Carter kept govn't spend/GDP low. That was good. And the negotiation with Sadat was good too. Peace is good. Again, Reagan's deficit spending wasn't good and I don't endorse it. But his steadfast support for Volker was a major act of leadership (as well as confirmation of Austrian economics).

Regarding the "rules". Forget this abstract sports metaphors and look at reality. The real system in play. I think the problem we have, again, isn't the regulation as rules. It's action as rules. The rules go like this: Banks can be poorly run and fail, but if they're big and interconnected, Uncle Sam and the Fed will bail them out. THAT's the operative rule in place. That is the rule of the gain since 1913. That is the foundation of this risky culture. I'm a big advocate of a free banking system where they are run as private businesses and must sink or swim. If a bank goes under, it's capital is liquidated to pay back the depositors. There's great historical precedent for that being the more moral and more stable system in early Scottish banking.

What we have now is not free market banking. It's fascist, cartelized banking. It's a network of banks whose reserves are provided by the central planner/price fixer and then allowed to lend money they don't have and could never repay through a fractional pyramid scheme built on paper reserve notes.

I'm terrified of the inflation potential when that fractional lending kicks back in, given the 8.5TRILLION in reserve lending via open market operations that the Fed has undertaken. Stagflation is looming just over the horizon. We know it can happen and we know why.

So, again, I feel that you are leaning on a false premise. Were credit default swaps largely unregulated? yes. Is banking the most tightly regulated industry this side of medicine? Yes.

Notice Circuit City, the second largest consumer electronics retailer, just went under without a peep from Uncle Sam or the Fed. It's very sad for the 34,000 people, but very instructive for the market of business people running retail stores. Best Buy, I'm certain, is chastened by the failure of Circuit City. These corporate giants are much more vulnerable than you think. Screw up, and you will fail. IBM was the monopoly of computing until Microsoft until Google until someone else. The government doesn't help this. On net, they make it worse (just look at Airbus and the rest of the zoombie companies of Europe).

That is the fear every business needs for TRUE regulation to work: self regulation. The financial system has none of that. We've been bailing out banks since the great depression. I'm advocating truly fair, truly just change.

"Lastly, could it be that we MIGHT run our nation with a balanced budget and money supply managed so tightly that a buck today will be a buck fifty years from today? In theory, maybe and I'd love to see PORK power taken away from Congress and the Admin, but then there is that pesky real world."

What you're describing it the better part of the 1800's and first decade of 1900. It can and should be done that way. Our nation was truly built on it. The two lapses from sound money and fiscal sanity were the war of 1812 and the civil war, both of which were funded by inflation (as all wars tend to be). It all went out the window with Woodrow, the tyrant, Wilson. He is one of the worst presidents this country has ever seen, having cartelized banking by colluding with the titans to create the Fed (a move he immediately regretted, btw) and having gotten us into a war we had no business fighting (WWI). It very possible that there would have been no Hitler or WWII had the US stayed out of WWI. But I digress into quantum speculation...

Nixon is a criminal for (among other things) abandoning the gold standard as well as instituting wage/price controls, though it was the profligacy of his predecessors that led to that run on the dollar. What a nightmare. Today's problems truly date back to that fateful/dreadful decision.

As for WWII and Vietnam not being curtailed... remember that we still had a federal reserve. FDR took the nation off the gold standard in effect by changing the ratio. LBJ's insanity and borrowing put pressure on our fiscal soundness.

But notice, with a gold standard, that "run on the dollar" happened. That was the regulation of market forces at work. That was the world indicating to the US government "we don't trust your handling of your books". It's only because the US had the biggest guns and was the de-facto world standard that Nixon could even have done what he did.

Getting back to your cause-and-effect claims about de-regulation and it's resulting calamity...

You should think of our current banking system/bankers as caged animals. They've been protected from the natural world that most other businesses (like Circuit City or Apple or any REAL business) must grow up in. A world that teaches them the importance of prudence for survival. That protection is the Fed, the FDIC and the false halo of accountability of the SEC (who looked into Madoff 8 times without finding anything, thereby signaling to the market that all was fine).

Every so often, these caged animals are let out into a small section of the wild because of tiny reduction in regulation of a particular area (we've never had broad "deregulation") or because of a new "innovation" in finance. Having been babied and coddled and protected their whole lives, these guys lack the basic instincts to keep them safe. They get mauled to death. Except not death. Because as soon as they get in trouble, the Zoo keepers swoop back in and save most of them, re-inforcing their false sense of security. Rinse and repeat.

The free banks of Scotland didn't live in this Zoo. They lived in the real world. If they screwed up or took outsized risks, they failed. They were liquidated. Reputation and fear kept them from screwing around with their depositors security. Our system is the opposite.

I think you and I share the same goals. We want a sane, trustworthy system. But collusion, cartelization and protectionism don't give us that. Freedom to succeed AND FAIL is the only system that works.

As for the 1990's... Remember, again, that Clinton was a HUGE deregulator and managed to keep government spending in check thanks to balanced budgets sent his way by the conservative congress. The REAL conservative congress. Greenspan called Clinton "the greatest republican president". Not that I'm endorsing "republicanism". But that fiscal sanity of the 1990's wasn't all Clinton. The congress writes the budget. Clinton just had the smarts to be pro-balanced budget and pro-free trade. No small or easy feat for a modern Democrat. I hope Obama is that smart. I pray that he is.

neilehat

John, Only three generations ago? My, you still are puppy. As for "soft Facism" strange this is coming from an "exItalian" whose brothers created Mussolini (everyone's favorite Dictator) and placed him on the pinnacle of power forcing us to create a military organization to crush him and throw the whole Fascist apparatus onto the trash heap of history (was this a form of "Welfarism" too?".

Try 18th Century. As for their approval, they would applaud the rise of the Modern Industrial State. It's far superior to opening Frontiers, where everyone is at the mercy of the terrain, weather, crop failures, lack of resources, lack of transportation networks, lack of decent Medical care - childbirth - diesease - injury, lack of clean water, lack of clothing, lack of shelter, lack of educational oppurtunities, and Oh, did I mention, the constant daily fear and reality of losing one's scalp to maurading "savages" or bands of mauraders roaming freely across the frontiers.

Now that was Free Market Economy at its best and you want to return to it?

Since you've come so late, I guess you're not familiar with the free and open Banking system that once prevailed prior to the establishment of a National Bank and later the Treasury and Federal Reserve. Which,in the early days, resulted in numerous Bank failures, frauds, Crashes, and Depressions. Thank God, for the establishment of an "Oligarchic Banking System". At least there's a sembelance of control now.

Open Freemarket Economies? I don't think so!

John Papola

@Neilehat,

"As for "soft Facism" strange this is coming from an "exItalian" whose brothers created Mussolini (everyone's favorite Dictator)"

This is one of the weirdest strawman arguments I've seen in a while, I must say. Also, I didn't realize that Mussolini was the creation of some eugenics project. I thought he was born to a single mother, like everyone else. You learn something new everyday I guess.

So you're insinuating that I have less credibility in identifying state/corporate collusion (aka, fascist economic planning) because my family line traces back to Italy? I suppose I'm just a dirty immigrant to you, then, right? I'm not a natural citizen because my great grandparents were born abroad? (now I'm arguing a strawman, but you get my stylized point).


With all due respect, who has "gone off the deep end" exactly? I don't have any brothers. I have one sister. I'm not sure you and I can relate in this thread, because you seem intent on clumping together entire genetic lines into bizarre constructs, and I consider each individual person to have their own unique mind and free will.

I wish you well, sir, but I don't think you're interested in discussion. Just mildly bigoted attacks and genealogical pissing contests. Have a great day!

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